One major element which leads to successful trading is the selection of the right currency pair. Selection of the one having huge potential for profitability plays a major role. Choosing the wrong currency pair will lead to money losses.
This has been among a few of the forex market’s similarities with the stock exchange. Apart from trading individual shares, they also trade currency pairs.
Criteria to follow for selecting the best forex currency pair to trade
The specific behavior and characteristics of currency pairs can help you choose the most appropriate one. The peculiarity of the currency market is extremely high liquidity; therefore, this parameter can be omitted because there is a constant range of supply and demand.
The following criteria factors seem to me to be the most important:
1. Identify the trend
The primary thing which you need to do is identify the trend. The trend is a direction in which the trade market has moved in the past few years.
For instance, AUD / USD is the currency pair moving downward over the last 6 months.
You can even identify the trends by using trend lines or applying moving averages (MAs) to your charts. If the couple is not yet trending, it is important to note the side trend before deciding which pair to sell.
2. Time the activity
Every currency pair has a time when it is most active. The trade volumes are the greatest during this time, and the price can fluctuate very significantly. AUD/USD, USD/JPY and NZD/USD were the ones who were active early during the Asian session.
This is the time when news is published that may affect the rate. If you are only trading in one intraday period, choosing the most active pairs in the available period is better.
3. Volatility
Volatility is the order of fluctuation of a currency pair over some time. We usually check this in D1. Some currency pairs sell in a relatively narrow range, while others have a wide range.
The higher the volatility of the pair, the greater the potential profit; However, the Stop Loss should also be high. It is entirely up to everyone to decide what suits them best: high volatility in large SLs – or low volatility in medium-sized SLs.
4. Trade price
Another important criterion when choosing currency pairs is the price of the trade. Forex costs are normal spread – the difference between buying and selling rates.
For advanced ECN accounts, the spread is small, but a small commission fee is charged for operations. Large pairs usually have less variance, cross-track variance is slightly higher, and exotic pairs have higher variance.
Final thoughts
Choosing a powerful currency pair for the trading requires an individual approach based on your personal preferences. I recommend beginners to start with big couples. Avoid making a mistake where you are combining the wrong currency pair.
Depending on your business style, focus on one pair or sell more. Three key criteria can help you choose – volatility, price per trade and activity time.
